How Does FHA Mortgage Insurance Differ From Private Mortgage Insurance?
The annual cost of FHA mortgage insurance is about 0.55% of your original loan amount. So on a $250,000 home with a down payment of $8,750, your monthly mortgage insurance premium would be based on a loan amount of $241,250, making the monthly payment $110.57. This amount must be paid with your monthly mortgage payment. Private mortgage insurance, by contrast, might cost as much as 1% of the loan balance per year, or $201.04 per month in this example. That’s an extra $1,085.66 annually. Thus, if you have to have mortgage insurance, FHA mortgage insurance can be the lesser of two evils. Under 2009 federal legislation, mortgage insurance premiums are tax deductible, so whether you have regular PMI or FHA mortgage insurance, the tax deduction can soften the blow. (Read 6 Reasons To Avoid Private Mortgage Insurance to learn more on why the FHA insurance is the lesser of these evils.) An advantage that PMI sometimes has over FHA mortgage insurance is that not all lenders require a mortgage
